Prime Minister Benjamin Netanyahu countered a controversial United Nations address by Foreign Minister Avigdor Lieberman on Tuesday, rejecting Lieberman's views on a possible land swap and asserting his belief that Israel and Palestinians could reach a peace deal within a year.

Mahmoud Abbas and Benjamin Netanyahu in Jerusalem.AP

Referring to recent talks with French President Nikolas Sarkozy and German Chancellor Angela Merkel, a statement by the Prime Minister's Office said that Netanyahu told the two leaders he hoped "the positive talks with Abu Mazen [Palestinian Authority President Mahmoud Abbas] would continue."

"It is vital, and I wholeheartedly believe that it is within our power to reach a framework agreement within a year and change Middle East history," the PM reportedly said.

The Prime Minister's Office added that the premier also accepted Sarkozy's invitation to a peace summit to be held in Paris during the coming October, which would also be attended by Abbas.

Earlier Tuesday, Lieberman presented the UN General Assembly with his draft for a population and territory swap, as part of an eventual peace deal between Israel and the Palestinians.

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Under Lieberman's controversial scheme, part of Israel's Arab population would be moved to a newly created Palestinian state, in return for evacuation of Israeli settlements in the West Bank.

"A final agreement between Israel and the Palestinians has to be based on a program of exchange of territory and populations," Lieberman told the UN General Assembly in New York.

An earlier statement by the Prime Minister's Office stated that "Lieberman's address was not coordinated with the prime minister," adding that "Netanyahu is the one handling the negotiations on Israel's behalf. The various issues surrounding a peace agreement will be discussed and decided only at the negotiating table, and nowhere else."

The PMO's statement Tuesday essentially put Netanyahu and Lieberman on a public collision course, after the foreign minister effectively expressed his disagreement with Netanyahu's peace-talks policies. While aides to the prime minister admitted that Lieberman's scheme has come up during internal discussions, no official decision as to his stance have been made, they said.

State Department spokesman Philip J. Crowley, referring to the possibility the Israeli prime minister and defense minister are at odds concerning the ongoing direct peace talks with the PA, said: "Maybe there are divergent vision between the Prime Minister and the Foreign minister, I'll defer to the Israeli government to explain the difference. I will let the Israeli government comment on whether it reflects the views of the Israeli government."

Asked by Haaretz whether PM Netanyahu can still deliver an agreement if his foreign minister does not coordinate a major speech with him, Crowley said: "We are not surprised. We knew Prime Minister Netanyahu faces some tough domestic politics issues."

Asked whether the U.S. administration officials are frustrated with the current stalemate and what was depicted as scrambling to keep both sides at the table:

I wouldnt characterize what we are doing in that way. We understood when both parties agreed to get into negotiations - September 26 - we saw it was coming, our position [on settlements moratorium] is clear, it was announced by the president and secretary of state."

"Are we frustrated? Of course we are frustrated but we understand these are very difficult weve been at it for some time and the issues are not yet resolved because theyve been very complex," Crowley said.

"We take some comfort in the fact that the people involved in the process, we know them well, we know the issues and the parameters of the solution. Thats why we believe we can solve an issue within a year," the State Department spokesman said, adding that the U.S. understands the parties "are in intense period of time and need to help both sides to resolve the immediate situation and to stay in the negotiations."

"Its important for both Israel and the Palestinians to remain in direct negotiations," Crowley said, adding "both sides showed restraint, and we hope we have (time) to work these issues through."

In his address, the foreign minister stressed that his proposals did not represent a scheme for "populations transfer," a phrase that evokes historical proposals by Israel's extreme right to evict Palestinians from the West Bank and Gaza altogether.

"We are not talking about population transfer but about defining borders so as best to reflect the demographic reality," said.

But the ideas are nevertheless likely to provoke an angry response, especially from Israeli Arabs, who make up some 20 percent of the country's population.

This is not the first time that Lieberman, whose ultra-nationalist Yisrael Beiteinu party is the second-largest in Netanyahu's right-wing coalition, has put forward the controversial proposals.

A latest round of peace talks, which kicked off in Washington in early September, hit a deadlock at midnight on Sunday when Israel's self-imposed freeze on settlement building expired. It remains uncertain if Palestinian President Mahmoud Abbas will carry out threats to walk out of negotiations unless the freeze is renewed.

Haaretz.com, the online edition of Haaretz Newspaper in Israel, and analysis from Israel and the Middle East. Haaretz.com provides extensive and in-depth coverage of Israel, the Jewish World and the Middle East, including defense, diplomacy, the Arab-Israeli conflict, the peace process, Israeli politics, Jerusalem affairs, international relations, Iran, Iraq, Syria, Lebanon, the Palestinian Authority, the West Bank and the Gaza Strip, the Israeli business world and Jewish life in Israel and the Diaspora.